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Why the Bubs Australia Ltd share price crashed lower on Monday

Unfortunately for its shareholders the Bubs Australia Ltd (ASX: BUB) share price had a disappointing start to the week.

At one stage the baby food and infant formula company’s shares were down as much as 14%, before recovering in late trade to finish Monday down over 8% to 88 cents.

What happened?

Although there was no company-related news to speak of on Monday, investors appear to have been rattled by a change in substantial holding filing.

According to that filing, one of Bubs’ largest shareholders has trimmed its position down by offloading 6.8 million shares on market. This reduces Next Step Global Limited’s stake in the company to 12.4% from 14.6%.

I believe this sale further adds weight to the argument that Bubs’ shares are overvalued and in danger of declines in the coming months. Judging by the sell-off yesterday, it appears I’m not alone in thinking this.

Should you buy the dip?

While I think Bubs has the potential to challenge a2 Milk Company Ltd (Australia) (ASX: A2M) and Bellamy’s Australia Ltd (ASX: BAL) in the Chinese market, it is too early to know if it will.

Sales into China are growing, but are reasonably insignificant at this point. Yet its shares are arguably priced as though success is a certainty.

In light of this, I will continue to sit on the sidelines and wait to see if sales grow meaningfully over the next 12 months.

In the meantime I think these three exciting small-cap shares would be great options for investors.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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